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Saturday, March 18, 2017

Government approves second tranche of capital infusion in PSU banks

The government has approved the second tranche of capital infusion in public sector banks to enhance their capital base. In a regulatory filing to the stock exchanges, Dena Bank said it “has received a communication from Government of India vide its letter… dated March 16, 2017 informing inter alia capital allocation of Rs 600 crore as part of turnaround linked infusion plan.” Kolkata-based United Bank of India too said it has received a communication from the central government regarding capital allocation of Rs 418 crore as part of turnaround linked capital infusion plan.

The proposal for allotment of equity shares of face value of Rs 10 each at premium to the President of India acting on behalf of the central government by way of preferential allotment will be taken up at the board meeting at March 27, the bank said.

Dena Bank said “the board approval for raising of capital of the bank through issue of equity shares to Government of India, LIC of India and GIC of India on preferential basis, is being obtained.”

The second round of funding entailing about Rs 8,000 crore is based on strict parameters.

The government has already announced fund infusion of Rs 22,915 crore, out of the Rs 25,000 crore earmarked for 13 PSBs for the current fiscal. Of this, 75 per cent has already been released to them.

The first tranche was announced in July with the objective of enhancing their lending operations and enabling them to raise more money from the market.

Under Indradhanush roadmap announced last year, the government will infuse Rs 70,000 crore in state banks over four years while they will have to raise further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global risk norms Basel-III.

PSBs are to get Rs 25,000 crore in each fiscal, 2015-16 and 2016-17. Besides, Rs 10,000 crore each would be infused in 2017-18 and 2018-19.

In the Budget 2017-18 speech on February 1, Finance Minister Arun Jaitley announced capital infusion of Rs 10,000 crore for the next fiscal beginning April 1.

Source : Financial Express
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n a first in Kerala, ESAF Small Finance Bank opens; targets Rs 20,000 cr worth business by 2020

ESAF Small Finance Bank, Kerala’s first small finance bank, is targeting businesses worth R20,000 crore by 2020. Kerala chief minister Pinarayi Vijayan on Friday inaugurated the SFB in Thrissur. ESAF Microfinance is among the 10 financial services firms selected by the RBI for setting up small finance banks. The bank, promoted by ESAF Microfinance and Investments (P) Ltd, has announced that it will open 85 branches in the first year of operations.

The new bank is offering interest rates of between 5.75% and 9% for term deposits of varying maturities. For savings deposits, the rates vary from 6% to 7%, based on the outstanding balance in the account. Senior citizens will be entitled to an additional .05% for term deposits.

ESAF Microfinance, which has a network of 285 branches in 93 districts spread over 11 states, will convert all its existing branches into customer service centres or ultra-small branches or satellite offices,” said K Paul Thomas, founder and ED, ESAF SFB.

ESAF Microfinance, which owes its success to the doorstep delivery of services, will replicate the same model for the bank. The bank envisages to appoint 10,000 agents in the next five years. They will function as human ATMs going to the doorsteps of customers for services, Thomas said. Higher interest rates and free Skype calls for customers at retail branches will be the unique selling proposition.

ESAF SFB plans to introduce new schemes such as Hridaya social deposits targeting high net worth individuals and NRIs. “The minimum deposit will be R15 lakh…” Thomas said.

Source : Financial Express
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29 lakh debit cards subjected to malware attack: Santosh Kumar Gangwar

A total of 29 lakh debit cards were subjected to malware attack last year through ATMs that were connected with the switch of Hitachi, the government said today.

As reported by commercial banks, 2.9 million cards were used at ATMs that were connected to switch of Hitachi, which was subjected to malware attack, Minister of State for Finance Santosh Kumar Gangwar said in a written reply to the Lok Sabha.

However, he said the successful attempts of misuse of compromised cards as reported to the RBI by banks was only 3,291.

"RBI has informed that Hitachi Payment Services (HPS) appointed SISA Infosec for PCI forensic investigation. The final report suggested that the ATM infrastructure of HPS was breached and the data between May 21 and July 11, 2016 were compromised, but not the POS (point of sale) infrastructure," he said.

According to the minister, the National Payment Corporation of India (NPCI) has said no independent investigation was carried out by it.

He further said the RBI advised banks to improve and maintain customer awareness and education with regard to cyber security risks.

"Banks were also asked to educate the customers on the downside risk of sharing their login credentials or passwords etc to any third-party vendor and the consequences thereof," he added.

RBI has set up a Cyber Security and IT Examination (CSITE) Cell within its Department of Banking Supervision in 2015, he said, adding that the bank issued a comprehensive circular on June 2, 2016 covering best practices pertaining to various aspects of cyber security.

In another reply, Gangwar said total stressed assets (gross non-performing assets and restructured standard advances) of scheduled commercial banks were Rs 9.64 lakh crore as on December 31, 2016.

Source : Economic Times
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Modi government, RBI may look at penal action, one-time settlement to fix bank defaulters

The Narendra Modi government and RBI are readying a strategy to deal with the bad loan problem, including a one-time settlement scheme for weak sectors and penal action against siphoning of funds. Sources tell ET Now that PMO, Finance Ministry and RBI are together working out a comprehensive strategy to nab top 50 defaulters.

Government and the central bank are awaiting the report from banks post completion of forensic audit on big defaulters, an official told ET Now on condition of anonymity.

"We are instructing banks to initiate forensic audit for all top 50 defaulters. We want to understand the nature of the defaults to see if it is a genuine case of business going bust due to sectoral issues or was money siphoned off. In case of siphoning of money, government will ask banks to initiate criminal action", said another source in the know of the development.

The department of financial services made a presentation to RBI last week at a high-level meeting on NPAs and has asked the central bank to overhaul the existing tools such as Joint Lenders Forum. Sources indicate that 3-4 banks with the highest exposure in JLF will be asked to make a decision for bad loans instead of the existing 60% voting requirement.

Moreover, PMO is also actively working on contours for a one-time settlement for bad loans. "Various bankers are worried to take decisions and agree to one time settlement options, so government lead panel is working on a one time settlement that will aid decision making", the source added

SBI recently announced one time settlement in the farm sector that make up about 6000 crore of doubtful cases on its books. Sources indicate that many more banks could look at similar mechanism for weaker sectors.

Gross non-performing assets in the banking system were estimated at around Rs7 lakh crore as of the end of December.

Source : Economic Times
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Government plans to swap CEOs of IDBI Bank and Indian Bank

The government is likely to tap Indian Bank chief executive MK Jain to try and turn around troubled IDBI Bank after seeing his hand in the stunning transformation of the Chennai-based lender. Jain, who is credited with making Indian Bank profitable, would swap positions with IDBI Bank chief Kishor Kharat, who would move to head Indian Bank.

This is the first time in recent memory that such a move is being considered and it is likely to set a precedent with performers being rewarded with challenging assignments, said two people familiar with the matter. A formal announcement is likely soon. Jain and Kharat could not be immediately reached for comment.

Jain’s selection was also prompted by the realisation that IDBI Bank needs stable leadership for some time so that a turnaround can be sustained. Jain has three years to go.

IDBI Bank reported record losses recently, and Jain would work to help recover dud loans amid an overall freeze in other operations of the bank, said the people who did not want to be identified.

Under Jain’s leadership, Indian Bank shares have delivered an over-three-fold jump in returns even as many of lender’s peers have struggled amid rising bad loans. In contrast, IDBI Bank is up just 22% from its year’s low. The stock price of the two banks reflects their financial performance over the past year.

IDBI Bank also had to contend with sagging morale after the Central Bureau of Investigation arrested five of its officials over alleged irregularities in lending to the failed Kingfisher Airlines.

Jain joined Indian Bank in No-vember 2015 and in the past one ye-ar has overseen a remarkable tur-naround. Net profit jumped nearly eight-fold to Rs 373.47 crore in the quarter ended December 2016 and earnings per share improved to Rs 7.78 in the same quarter from Rs 0.88 in October-De-cember 2015.

IDBI Bank, on the other hand, posted a record loss of Rs 2,255 cro-re in the Decem-ber quarter as it had to make huge provisions for bad debt which stood at 15% of the total loan book. Due to poor de-mand for loans and non-payment of dues, the bank’s net interest in-come crashed 45% to Rs 850 crore while non-interest income fell 5% to Rs 551 crore.

ICRA, which downgraded the bank’s rating, has said the lender would need at least Rs 9,000 crore to stay afloat, which is almost the bud-geted capital investment by the central government for all banks.

Source : Economic Times
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Government may shuffle heads of some PSU banks

The government is considering a proposal to shuffle the heads of some public sector lenders, including IDBI Bank, to improve their performance and resolve the issue of bad loans.

"There is a proposal for swapping of MD level position in banks which is being looked into. Final decision would be taken after careful consideration," said a source.

There are also talks of the CEO and managing director of IDBI Bank, Kishor Kharat, being moved to another bank.

The Appointments Committee of the Union Cabinet, headed by Prime Minister Narendra Modi, will take a final decision on this issue.

IDBI Bank has largest presence in joint lending and a has critical role in many Corporate Debt Restructuring (CDR) proposals, sources said.

According to a Parliamentary Committee report, although IDBI Bank has been a pioneering institution in the financial sector of the country, in 2015-16 it registered a loss of Rs 3,664 crore as against a net profit of 873 crore in 2014-15.

The bank has also seen decline profits on a sequential basis -- Rs 2,031 crore in 2011-12, to Rs 1,882 crore and Rs 1,121 crore in 2012-13 and 2013-14, it said.

The decline in profits of IDBI Bank could be attributed to increase in Gross Non-Performing Assets, loan write-offs and poor financial results, Committee on Petitions said in its report.

It has recommended that the Finance Ministry should effectively liaise with the IDBI Bank for formulating a Transformational Plan with a target of putting the stressed projects back on track.

It has suggested bringing down Gross NPAs to 3 per cent and Net NPAs to zero per cent by 2018-19, selling of non-core assets to fund the growth.

The board of IDBI Bank last month approved proposal for dilution of stake in some non-core businesses to shore up capital base.

Source : Economic Times
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Thursday, March 16, 2017

Farm loan waivers: As bad loans crisis in banks worsens, SBI chief Arundhati Bhattacharya warns of dangers ahead

State Bank of India (SBI) chairman Arundhati Bhattacharya on Wednesday made her reservations clear on the recurrent practice of waiving crop loans, stressing it disrupts credit discipline as borrowers expect more such relaxations in future. The statement came amid bankers warning of a worsening of the bad loan crisis, and days after the BJP secured a historic mandate in Uttar Pradesh where it had made a pre-poll promise to bring in a loan waiver scheme for farmers in the state.

“We feel that in case of a (agriculture) loan waiver there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. As such, future loans given often remain unpaid,” Bhattacharya said on the sidelines of a CII event in Mumbai. However, she added that the bank has not yet received any loan waiver proposal.

As of the first quarter of 2016-17, close to 10% of the Rs 86,000-crore farm loans in Uttar Pradesh, mostly disbursed by public-sector banks, are assumed to be impaired, according to a report by Kotak Institutional Equities. Out of Rs 13,300 crore worth farm loans extended by SBI in UP as of Q1FY17, 27% are overdue, the report said.

Bhattacharya said while it is important for banks to make credit available to farmers so that they can leverage and do better, it is also important to maintain credit discipline. She isn’t alone in questioning the policy of loan waivers and interest rate subvention. In 2014, then Reserve Bank of India governor Raghuram Rajan had said interest subventions and loan waiver could distort the price of credit and also lead to misuse of such schemes. Recently, RBI governor Urjit Patel said “steep interest rate subventions and large credit guarantees impede optimal allocation of financial resources and increase moral hazard” and, as such, these don’t solve the sector-specific issues.

Even the Rs 60,000-crore farm loan waiver scheme announced by the UPA government ahead of the 2009 general election attracted criticism from the Comptroller and Auditor General, which had said that 8.5% of farmers out of 80,299 accounts audited were not eligible for debt waiver.

Fresh crop loans to UP farmers have been to the tune of Rs 65,000-75,000 crore per annum over the last few years, or around 9% of the such loans to farmers in the country. “Crop loan disbursed to UP farmers during 2016-17 rabi season was around Rs 32,700 crore, and more than 95% of this was by commercial banks and the balance by cooperative banks. During the 2016 kharif period, fresh loans disbursed was to the tune of over Rs 30,000 crore, with a sixth of it by cooperative banks,” a UP finance department official had earlier told FE. Any waiver of these loans will likely add roughly 70 basis points to the state’s fiscal deficit.

The loan waiver promise comes at a time banks, especially the public-sector ones, are struggling with non-performing assets (NPAs). More than four-fifths of the NPAs are estimated to be in public-sector banks, where the NPA ratio had touched almost 12% compared with 9% across all banks as of September last year. The NPA ratio worsened by the end of December 2016. According to CARE Ratings, bad loans touched Rs 6,97,409 crore, or 9.3% of banks’ advances, by December last year, rising from Rs 4,37,859 crore a year earlier.

Meanwhile, the finance ministry on Wednesday said the rate of increase of bad loans has slowed in the current quarter of 2016-17. It added that the steel sector, with a significant exposure, shows sign of improvement and that the setting up of more oversight committees, along the lines of the one already established by the RBI, is under consideration to address the NPA crisis.

Speaking at the first meeting of the Consultative Committee (which has members cutting across political parties), finance minister Arun Jaitley said the government is taking sector-specific measures to deal with the NPA problem, specifically for the resolution of large cases of debts. The members of the committee suggested that the government set up the Public-Sector Asset Rehabilitation Agency (PARA), as mooted by the latest Economic Survey, and it should only consider those NPAs where sector-specific reforms do not work. It was also suggested that the government explore long-term debt market for financing NPAs.

Members also suggested a close monitoring of private-sector asset reconstruction companies (ARCs), which haven’t done well so far, especially in the wake of the government’s decision to allow 100% foreign direct investment in ARCs through the automatic route. Other suggestions include allowing state governments to take part in the auction of stressed assets to fixing the gross NPA norm in the range of 9-10% as well as not counting the asset as an NPA if it has been restructured.

Source : Financial Express
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Deutsche Bank may sell its Indian retail business to boost capital

Deutsche Bank AG is weighing the sale of its Indian retail businesses as the German lender considers asset disposals to help boost capital levels, two people with knowledge of the matter said. The bank is also considering selling retail operations in European countries including Spain, the people said, asking not to be identified as the plans aren’t public. The Frankfurt-based lender declined to comment.

Chief Executive Officer John Cryan earlier this month announced a strategic overhaul that includes offering 8 billion euros in stock, selling part of the asset management business and raising 2 billion euros ($2.13 billion) of capital. While asset disposals are part of the strategy, Cryan stressed that they’ll play a minor role in the overall aim of boosting capital levels.

Deutsche Bank has previously sold parts of its India business. In 2010, it sold the mortgage business acquired as part of its takeover of German retail bank Postbank, and five years later, it sold its local asset management unit. The bank’s Indian business had 693 billion rupees ($10.5 billion) in assets in total at the end of its last fiscal year ended on March 31, 2016, according to company filings. It made a profit of 23.4 billion rupees that fiscal year.

Source : Financial Express
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Merger of SBI, Bharatiya Mahila Bank to herald slew of reforms

The government is expected to initiate reforms in the financial sector soon, starting with merger of Bharatiya Mahila Bank with State Bank of India, India’s largest lender.

Other key decisions that may be unveiled over the next 2-3 months include new capital infusion parameters for 2017-18, a consolidation road map for state-run banks and insurance firms and steps to resolve stressed assets.

“The merger of Bharatiya Mahila Bank may happen within the next few days,” said a senior finance ministry official, adding that consolidation of other state-run banks will be taken forward by bringing in the Banks Board Bureau. “The government is only expected to play a matchmaker. It is for the banks to finally decide and kick-start the process,” the official said. There are six to seven merger combinations on the table.

After being nudged by the government, SBI announced its intent in 2016 to merge its five associate banks and Bharatiya Mahila Bank. The cabinet approved the merger last month and said in a gazette notification that the entire undertakings of these five banks will stand transferred to and vested in SBI from April 1.

On the proposal to merge Bharatiya Mahila Bank with SBI, finance minister Arun Jaitley had then said, “It is under consideration as of now.”

The government is open to sell stakes in IDBI Bank in small tranches, including a possible follow-on offer of shares. “We are providing extended capital support to IDBI. Once it has more control on its bad loan portfolio, we are sure there will be enough interest from investors,” the official said. IDBI Bank’s gross nonperforming assets widened to Rs 35,245 crore, or 15.1% of gross advances, at the end of December from Rs 30,134 crore, or 13.05% of advances, as of September 30.

Separately, the finance ministry is giving final shape to more stringent norms on capital infusion in PSBs. The government budgeted Rs 10,000 crore for supporting banks in this fiscal.

“We have already directed banks to divest non-core assets. Increasingly, capital will only be allocated to performing lenders and laggards will either need to change business strategy or merge to achieve economies of scale,” said another ministry official aware of the developments.

The Banks Board Bureau will work with lenders to develop business strategies and capitalraising plans.

In 2016-17, the government decided to infuse funds early to allow banks to step up lending. It set aside 25% of funds to be disbursed based on performance parameters including more efficiency, growth of credit and deposits and reduction in operation costs.

Jaitley and senior government officials met Reserve Bank Governor Urjit Patel and his two deputy governors last week to take stock of stressed assets in staterun banks and firm up ways for their quicker resolution, which may include the setting up of a bad bank, an asset management company to tackle stressed loans.

The non-performing assets of public sector banks stood at Rs 5,89,502 crore (11.82%) in September, the government said in parliament last month.

Source : Economic Times
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SBI to hike stake in credit card JVs to 74 per cent

State Bank of India on Tuesday said it will hike its stake in its two credit card joint ventures with General Electric Company to 74 per cent.

SBI's board has given approval to infuse Rs 1,160 crore in the two JVs -- SBI Cards and Payment Services Pvt Ltd (SBICPSL) and GE Capital Business Processes Management Services Ltd (GECBPMSL)-- through purchase of equity shares from GE Capital so as to increase the bank's stake in both the companies to 74 per cent, SBI said in a filing to the BSE.

The American company seeks to exit SBI Cards.

SBI currently holds 60 per cent stake in SBICPSL and 40 per cent in GECBPMSL. The balance being held by GE Capital in both the ventures.

As per an agreement between SBI and GE Capital at the time of formation of SBI Cards, it was decided that whenever any party decides to exit the JV, the decision has to be on the basis of mutual understanding.

SBI, the nation's largest lender, entered credit card business in 1998 by roping GE Capital India, the consumer finance arm of US-based GE Capital.

Currently, SBI Cards' board has eight members, including three from GE Capital.

Source : Economic Times
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